(Solution) If You Want The Formulas And Any Calculations, Select The Corresponding Cell And Press F2(Function Key On Key Board), It Will Show All Calculations... | Snapessays.com

(Solution) If you want the formulas and any calculations, select the corresponding cell and press F2(Function Key on key board), It will show all calculations...

i have the problem attached with the work but not understanding how this problem is solved? Could you break it down easier so i can comprehend how to calculate number to get the answerIf you want the formulas and any calculations, select the corresponding cell and press F2(Function Key on key board),


It will show all calculations and formulas Automatically




Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares


outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 8%.


assume that the risk free rate of interest is 5% and that the market premium is 6%. Both Vandell and


Hastings face a 40% tax rate.


Vandell's free cash flow (FCFo) is $2million per year and is expected to grow at a constant rate of 5% a


year; its beta is 1.4. What is the value of Vandell's operations? If Vandell has $10.82 million in debt, what


is the current value of Vandell's stock? (hint: use the corporate valuation model)


Solution; Computation of the Value of Operations and Current value of Stock


Calculate the Present Value of all future free cash flow associated with operations


Free cash flow next year =2.0*1.05




Value of operations =


2.1/ (WACC-5%)


Now first calculate the cost of equity


cost of Equity =


risk free rate +beta*risk premium


cost of Equity =




cost of Equity =




Let value of equity is Vs then we have


Value of operations = Vs+$10.82 million


The weight of debt =10.82/ Value of operations


Weight of equity =


(Vops-10.82)/ Value of operations


WACC=10.82/ Value of operations *8% *(1-40%) + (Value of operations -10.82)/ Value of operations *13.4%




13.4%-8.6%*10.82/ Value of operations ------2


Substituting the value of WACC in equation 1 we get,


Value of operations =


2.1/ (13.4%-8.6%*10.82/ Value of operations -5%)


Solving we get


8.4%* Value of operations -0.93052=2.1


Value of operations =






Now value of equity V


$25.26 million


Solution details:

This question was answered on: May 23, 2022

Solution~00021147721548.zip (25.37 KB)

This attachment is locked

Our expert Writers have done this assignment before, you can reorder for a fresh, original and plagiarism-free copy and it will be redone much faster (Deadline assured. Flexible pricing. TurnItIn Report provided)

Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .

About this Question






May 23, 2022





We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

  • ■ As a reference for in-depth understanding of the subject.
  • ■ As a source of ideas / reasoning for your own research (if properly referenced)
  • ■ For editing and paraphrasing.

This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student.

Get Free Price Quote